Regional Output Spillovers in China: Estimates from a VAR Model

Interregional spillover effects are central to China’s growth policy; yet relatively little is known about the strength and duration of these spillovers and whether their characteristics have changed over time. This paper examines the spillover of output between the three commonly-used regions of China: coastal, central and western regions. We find that there are strong spillovers from the coastal region to both other regions, from the central region to the western region but that shocks to the western region have no flow-on effect for the other two regions. Thus a policy of developing the coastal region is likely to indirectly benefit the other two regions.